Systemic Risks

Systemic risks are those that threaten the viability of entire markets, not just a single firm within a market.

For example, rising default rates in the subprime mortgage market, and the subsequent domino effect among financial institutions created by linkages embedded in mortgage-backed securities and credit default swaps, have had a profound impact on the global financial system.

There are plenty of less widespread, but no less real, examples: A spike in the cost of fuel is squeezing the entire passenger airline industry. The availability of low-cost skilled labor in emerging economies is challenging the viability of many domestic manufacturing businesses. A suspected case of mad cow disease can corral beef sales for months or years.